Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

On May 17, 2018, the Herc Holdings Inc. 2018 Omnibus Incentive Plan (the "2018 Omnibus Plan") was approved and replaced the Herc Holdings Inc. 2008 Omnibus Incentive Plan. The 2018 Omnibus Plan provides for grants of both equity and cash awards, including non-qualified stock options, incentive stock options, stock appreciation rights, performance awards (shares and units), restricted awards (shares and units) and deferred stock units to key executives, employees, non-management directors and non-employee consultants. The total number of common shares authorized for issuance under the 2018 Omnibus Plan is 2,200,000, of which approximately 1,425,000 remains available as of December 31, 2022 for future incentive awards.

Stock-based compensation awards are measured on their grant date using a fair value method and are recognized in the statement of operations over the requisite service period. The Company's stock-based compensation expense is included in “Selling, general and administrative” expense in the Company's consolidated statements of operations.

The following table summarizes the expenses and associated income tax benefits recognized (in millions):


	Year Ended December 31,
	2022		2021		2020
Compensation expense	$	27.1	$	23.3	$	16.4
Income tax benefit	(7.1)		(6.0)		(4.2)
Total	$	20.0	$	17.3	$	12.2

As of December 31, 2022, there was $22.8 million of total unrecognized compensation cost related to non-vested restricted stock units ("RSUs") and performance stock units ("PSUs"). The total unrecognized compensation cost is expected to be recognized over the remaining 0.9 years, on a weighted average basis, of the requisite service period that began on the grant dates.

Stock Options

All stock options granted had a per-share exercise price of not less than the fair market value of one share of common stock on the grant date. Stock options vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the 2018 Omnibus Plan). No stock options are exercisable after ten years from the grant date.

The Company’s practice is to grant stock options at fair market value. Outstanding options vest over four years with terms of seven years to 10 years, assuming continued employment with certain exceptions. Vesting of the option awards is contingent upon meeting certain service conditions. The fair value of option grants is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expected life assumed at the date of grant. The compensation expense recognized for all stock-based awards is net of estimated forfeitures. Forfeitures were estimated based on an analysis of actual option forfeitures. There were no stock options granted during 2022, 2021 or 2020.

A summary of option activity is presented below.


	Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions of dollars)
Outstanding at December 31, 2021	96,728	$	43.48
Granted	—	—
Exercised	(5,661)	33.19
Forfeited or expired	—	—
Outstanding at December 31, 2022	91,067	$	44.12
Expected to Vest at December 31, 2022	—	$	—	—	$	—
Exercisable at December 31, 2022	91,067	$	44.12	1.3	$	8.0

Stock options as of December 31, 2022:


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Number Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
$30.01-40.00	55,653	$	33.19	0.6	55,653	$	33.19	0.6
50.01-60.00	27,529	58.78		2.4	27,529	58.78		2.4
70.01-80.00	7,885	70.14		2.1	7,885	70.14		2.1
	91,067	$	44.12		91,067	$	44.12

Additional information pertaining to stock option activity is as follows (in millions):


	Year Ended December 31,
	2022		2021		2020
Aggregate intrinsic value of stock options exercised	$	0.5	$	4.6	$	3.7
Cash received from the exercise of stock options	0.2		2.2		5.6
Tax benefit realized on exercise of stock options	0.1		1.2		1.0

Performance Stock Units

PSUs will vest based on the achievement of pre-determined performance goals over performance periods determined by the Company's Compensation Committee. Each of the units granted represent the right to receive one share of the Company's common stock on a specified future date. Compensation expense for PSUs is based on the grant date fair value and is recognized ratably over the three year vesting period. In addition to the service vesting condition, the PSUs have an additional vesting condition which stipulates the number of units to be awarded being based on the achievement of certain performance measures over the applicable measurement period and can range from 0% to 280% of the target.

A summary of the PSU activity is presented below.


	Units	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021	400,218	$	48.30
Granted	50,620	164.43
Vested	(120,871)	40.79
Performance change	(7,715)	40.79
Forfeited	(3,267)	54.54
Nonvested at December 31, 2022	318,985	$	69.68

The weighted average per share grant-date fair values of PSUs granted during 2022, 2021 and 2020 were $164.43, $73.61 and $38.56, respectively. The total fair value of PSUs that vested during 2022, 2021 and 2020 were $4.9 million, $7.1 million and $6.9 million, respectively.

PSUs granted in 2022 and 2021 include vesting conditions based on the achievement of the Company's return on invested capital ("ROIC") and average rental adjusted EBITDA performance measured over a three-year period starting from the year of grant. Almost all PSUs granted in 2020 include vesting conditions based on the achievement of the Company's ROIC performance measured over a three-year period starting from the year of grant.

Restricted Stock Units

RSUs granted under the 2018 Omnibus Plan will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the 2018 Omnibus Plan) specified by the Compensation Committee. Compensation expense for RSUs is based on the grant date fair value and is recognized ratably over the vesting period which generally ranges from one year to three years.

A summary of the RSU activity is presented below.


	Units	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021	353,910	$	54.22
Granted	79,122	155.68
Vested	(175,654)	49.03
Forfeited	(9,779)	87.25
Nonvested at December 31, 2022	247,599	$	89.18

The weighted average per share grant date fair values of RSUs granted during 2022, 2021 and 2020 were $155.68, $81.35 and $35.36, respectively. The total fair value of RSUs that vested during 2022, 2021 and 2020 was $8.6 million, $7.5 million and $12.4 million, respectively.